It is the 21st century and gas prices are constantly increasing, but the fuel efficiency of cars is lacking improvement. Al’s Auto Development Enterprise (AADE) seeks to make innovations to improve the fuel “efficiency” by relying on solar power. AADE plans to manufacture a solar powered vehicle that gets 40 miles per gallon of gas. AADE is the best when it comes to automobile research so they will not have many problems finding an alternative to avoid relying heavily on increasing fuel prices. The dilemmas they face will come from an economic standpoint.
AADE wants to make a solar powered car that would be sold for a reasonable price. This means that AADE can not be spending too much money on manufacturing in order for them to make a profit. Since AADE is firm seeking profit, it will be helped by the government’s research and development tax credit. AADE can also make a profit from federal grants as well as contracts. Profit issues that AADE must account for include innovation and monopoly power. The loss issue that AADE must account for is uncertainty about whether people will find this vehicle to be a profitable alternative to high fuel prices. If AADE could get a 5% research loan for $1,000,000, then they would be forced to pay $1,050,000 at the end of the loan. The rent for developing this solar powered car would be the amount the demand for these cars meets their supply. The labor issues that AADE will have to account for include how many people are needed in order to make this solar powered car in order to create a maximum profit. AADE will want to use the least amount of people possible to account for the greatest income available. If I was AADE, I would develop this car because the demand for this vehicle is very high. On top of the high demand, I am also getting tax cuts from the government so I will be able to have an higher amount of revenue now than I would if I was to start building this car later when the demand wouldn’t be as high.